An undated still image shows Sergei Mavrodi in video footage responding to media questions. Mr. Mavrodi’s “mutual aid fund” MMM-2012 is luring hordes of Russian investors by touting returns of up to 75 per cent a month. His previous scheme, MM-2011, is now closed and under investigation.
REUTERS

Crime

Despite the inherent risks, his website claims the high ground: “It’s not the System (MMM) that is amoral, but the world around it that is amoral! The System is the sole oasis. A small island. Of goodness and justice. The first green shoots. Of the new! Of the best! Of truth and light! Of freedom!”

In some ways, Mr. Mavrodi’s notoriety has proved one of MMM’s greatest strengths.

“MMM is a brand that everyone knows. Everyone knows about Mavrodi,” said Anton Ryzhikov, a former MMM investor in Kharkov, Ukraine, who rose to be a stonik (hundreder).

One explanation for his popularity lies in the conspiracy-minded attitude that many Russians and Ukrainians have towards the first MMM debacle in the 1990s.

“It wasn’t [Mr. Mavrodi] who stole the money. It was the police, the state, the tax authorities,” said Mr. Emilianov, the hundred-thousander, reflecting a common sentiment towards the authorities. “Definitely one respects this person. He says the right things and has shown what he is capable of.”

Former depositors say Mr. Mavrodi also exerts a kind of spiritual hold over his followers. “MMM is very similar to a cult. You have to clap and shout ‘hurray!’, ‘We Can Do Much.’ You can’t talk about other structures. You can only write good things on the internet,” said Mr. Vorobyev, the graphic designer.

And then, of course, there is the desire for a quick buck. “People brought money because the basic human characteristic is greed,” said Mr. Ryzhikov. “If you hold on for a bit longer you will earn a bit more. People simply couldn’t stop themselves.”

Mr. Ryzhikov, a 22-year-old technical draughtsman, said he borrowed money to invest in the scheme on the advice of a relative, because he needed cash when his employer temporarily slashed his pay during a downturn. He got out in time, but many other hard-up people in Kharkov took out loans to invest in MMM-2011 and lost money.

“I have several people who are paying their child benefits (welfare payments meant to support families) to the bank (to pay off their debts). It’s an unacceptable situation,” he said.

Russian officials have banned MMM’s billboard advertisements and advised the public not to invest in its schemes. But critics argue the authorities have done too little, too late.

“It’s absolutely amazing what [Mr.] Mavrodi continues to do,” said Igor Kostikov, a former head of Russia’s stock market watchdog, who now heads Finpotrebsoyuz, which lobbies on behalf of financial consumers. He accuses Russia’s Federal Service for the Financial Markets (FSFM), the successor to the body he once headed, of failing to act, and says authorities could pursue Mr. Mavrodi under laws governing securities and banking.

“The position of the financial regulator is that it’s not their piece of bread. The question is: why do they exist?” he said. “The FSFM should be ringing all the bells and not sleeping by the fireplace.”

A spokeswoman for the FSFM said the service’s responsibilities don’t include regulating pyramids. She called Mr. Kostikov’s criticisms “amateurish.”

Andrei Kashevarov, deputy head of Russia’s Federal Anti-monopoly Service, which also regulates the advertising market, said there are loopholes that make it difficult to act more decisively against Mr. Mavrodi. For example, websites such as MMM’s are not categorized in Russian law as advertising, which is regulated, but as information, which is not. But he says, “the legislation is changing and will be made tougher.”

Shortly after MMM-2011 folded, Russia’s government instructed the finance ministry to draw up legal changes to combat pyramid schemes. Alexei Savatyugin, deputy finance minister, has said organizers of such schemes should face up to ten years in jail and a fine of up to a million rubles.

For now, though, Mr. Mavrodi the pyramid grandmaster remains defiant.

“It’s impossible to ban it,” Mr. Mavrodi said. “It’s your money … You can burn it. You can throw it away. You can give it to someone else.

“I’m trying to change the world. The old world of course will try to resist.”

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